I recently had $4000 removed from my Roth IRA to avoid the 6% penalty, due to my MAGI range and allowed Roth Ira contributions. I did not roll it in to a traditional IRA and instead had it transferred to my brokerage account. When I requested to have the excess contributions removed, they asked me if I wanted to either A) NOT withhold federal income tax, or B) specify the % of federal income tax I wanted to be withheld. My understanding is that I do NOT want to withhold federal income tax because my money I contributed to the Roth and then removed is already taxed.
Was I supposed to withhold federal income tax on the contributions I removed? If so, how much?
BTW - this was all done with Schwab. The form I used to fill out is available at the following URL (section 4 has the verbiage about federal income tax withholding): https://client.schwab.com/secure/file/P-221581/IRA_Rechar_Excess_APP13581.pdf
No, you would not have tax withheld. The return of contributions will not be taxable, but any earnings on it will be. That will be reported on a 1099-R in box 2a. You won't receive that 1099-R until next year so you might have to amend your 2015 tax return to report it (and pay the tax on the earnings - if any).
No, you would not have tax withheld. The return of contributions will not be taxable, but any earnings on it will be. That will be reported on a 1099-R in box 2a. You won't receive that 1099-R until next year so you might have to amend your 2015 tax return to report it (and pay the tax on the earnings - if any).
Please help. I am a college student and I am new to Roth IRA. I did not know that I need to have income in order to contribute. I had $4000 saved up from birthday gift to odd jobs and contributed in Roth IRA vanguard. Later I realized that I need to have taxable income which I did not. So, I did an early withdrawal from Roth IRA (I did not do the excessive contribution removal, I just didn't know at that time). When I request early withdrawal they asked me if I wanted to either 1) not withhold federal income tax, 2) 10% of federal income tax I wanted to be withheld. And I was stupid enough to choose federal income tax withheld 10% and state tax as well. It took me awhile to realize that money I contributed to the Roth is already taxed but I was not aware. Now, vanguard only gave me back $3600 and took $400. how can I get $400 back? I did not have any taxable income last year 2017 and the contribution $4000 was from years of saving..please help. Gain from the contribution was only $40 dollars
@sangwooc1 - This is a 2 year old post - it is usually better to ask a new question.
Just enter the 1099-R when you get it. If you just took a normal distribution the anything in excess of your contribution will be taxable. If your $4,000 contribution had $40 of gain then you should have had $4,040 returned. The $4,000 contribution will offset the $4,000 contribution leaving $40 as the taxable amount plus a 10% early distribution penalty of $4.00.
The $400 withheld in box 4 on the 1099-R will add to all other withholding to offset the tax on the $44.00 taxable amount. Anything is excess will be a refund.
You can always withdraw your own Roth contributions tax and penalty free.
Enter a 1099-R here:
Federal Taxes,
Wages & Income
I’ll choose what I work on (if that screen comes up),
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).
OR Use the "Tools" menu (if online version under My Account) and then "Search Topics" for "1099-R" which will take you to the same place.
Be sure to choose which spouse the 1099-R is for if this is a joint tax return.
Be sure to pick the correct 1099-R type: Standard 1099-R, CSA-1099-R, CSF-1099-R, RRB-1099-R.
[NOTE: When you get to the "Your 1099-R Entries" screen where you can add another 1099-R, use "continue" to keep going as there are additional interview questions after that screen in most cases. You can always return as shown above.]
One of the followup questions will ask for your prior year contributions not previously withdrawn. Those contributions that still remain in the Roth will not be taxed or subject to a early withdrawal penalty. That will add a 8606 form to your tax return with the Roth contribution and tax calculation in part III.